DIRECTORS DUTIES. BASIC PRINCIPLES. By Atticus Legal, the best darn law firm God ever created! (At least in Hamilton anyway)
That’s right – we claim divine authority. So you should probably read on. This Atticus Legal information sheet gives a brief description of the general directors duties owed to the company and its shareholders. For specifics on the statutory obligations of directors see also our other information sheets with links at the end of this article.
(i) Duty to Act in Good Faith and in the Best Interests of the Company.
Directors must act in good faith and in what they believe to be the best interests of the company.
This test is subjective – that is, it is the personal belief of the director which is relevant, not the more objective standard of what a reasonable director would believe.
In practice, Courts are reluctant to review an exercise of business judgement taken in a boardroom. This is because a Court will generally not want to substitute the business judgement of the director(s) for its own with the benefit of hindsight.
(ii) Duty to Exercise Powers for a Proper Purpose
Directors must exercise their powers genuinely in the best interests of the company. For example, directors cannot use their powers as directors to issue shares to block a takeover by another company even though they may genuinely believe it to be in the best interests of the company.
(iii) Duty to Comply with the Act and the Constitution
Directors must comply with the requirements of the Act and ensure that the company and the other directors comply with procedures and provisions in the company’s constitution. This requires at least a working knowledge of the Act and of the company’s constitution.
(iv) Duty to Disclose Conflicting Interests
When a director becomes aware that a conflict of interest exists in a transaction or proposed transaction, he/she must enter in the interests register, and disclose to the board of directors, the nature and monetary value of that interest. Or, if the monetary value cannot be quantified, the nature and extent of that interest
A common example of such an interest is where a director is also a director or shareholder of another company with which the company proposes to enter into a transaction.
(v) Duty not to Misuse Company Information/Corporate Opportunities
When a director receives information (which would not otherwise be available to him/her) in his/her capacity as director or employee of the company, that director must not disclose to any person, or make use of, or act on that information except:
- for company purposes; or
- as required by law; or
- for disclosing his/her interest to the board;
- or for disclosure to a corporate appointor; or
- in limited circumstances, where authorised to do so by the board (for purposes other than company purposes).
LIABILITY FOR BREACH OF DIRECTORS DUTIES
The Act sets out various remedies available to shareholders for breach of directors duties.
The Courts have express statutory authority to make an order restraining a company or a director that proposes to engage in conduct which would contravene the constitution or the Act.
- The Court can authorise a shareholder or director to bring proceedings on behalf of the company.
- Shareholders may also bring personal actions against directors for conduct which is unfairly prejudicial to the shareholders.
- The Court can disqualify a director for a period not exceeding ten years where the director has been convicted of certain specified offences.
FOR FURTHER INFORMATION ON COMPANY LAW AND DIRECTORS DUTIES
For further information see also our Atticus Legal information sheets on the following:
- For company records & registers the directors must keep at https://atticuslegal.co.nz/company-records-and-registers-directors-obligations-by-atticus-legal-company-business-lawyers-hamilton/
- For more on the specific statutory obligations and directors duties under the Companies Act at https://atticuslegal.co.nz/company-directors-duties-statutory-obligations-atticus-legal/
- For general principles applying to companies and ‘limited liability’ at https://atticuslegal.co.nz/company-law-101-what-directors-and-shareholders-need-to-know/
WANT TO KNOW MORE ABOUT DIRECTORS DUTIES? Just ask Atticus Legal, Company Lawyers Hamilton & Business Lawyers Hamilton
CALL ANDREW SMITH, the owner of Atticus Legal, for expert professional advice on any of the matters referred to in this information sheet.
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Disclaimer: The information contained in this information sheet is, of necessity, of a general nature only. It should not be relied upon without appropriate legal advice specific to your particular circumstances.
This information sheet is copyright ©Atticus Legal, March 2016